Are happy shareholders turning a blind eye to bank misconduct?

Dividend-seeking investors might deserve a share of the blame for banks’ questionable sales tactics

Are happy shareholders turning a blind eye to bank misconduct?

Like many major corporations, banks understand the need to please shareholders. But is that need motivating them to cross lines they shouldn’t?

Canada’s major banks have recently gone on the defensive after reports that they pushed employees to sell products aggressively, putting their clients’ finances at risk. However, some shareholders may be willing to turn a blind eye because of the reliable stream of quarterly dividends that the banks provide, according to the Globe and Mail.

Citing data from, the report said that bank dividends have experienced an annualized growth rate ranging from 10.8% at Toronto-Dominion Bank (TD Bank) to 4.7% at Bank of Montreal (BMO). Comparing the five-year dividend-growth rate to the rise seen in the past 12 months shows a bit of a dip. Canadian Imperial Bank of Commerce (CIBC) was an exception, with its 12-month dividend-growth rate at 7.6% better than its five-year record of 7.1%. For BMO, its 12-month performance of 4.8% was only a hair’s breadth better than its five-year rate of 4.7%.

The other big six banks saw more significant slowdowns:

  • Bank of Nova Scotia had one-year growth of 5.6%, with its five-year rate being 6.7%
  • Royal Bank of Canada’s (RBC) one-year record was 7.4%, in contrast to 8.8% annually that it managed over the past five years
  • National Bank of Canada (NBC) dividends grew 3.7% in the past year, while the five-year growth rate was 8.4%
  • TD posted 9.1% dividend growth in the past year, as opposed to its five-year growth rate of 10.8%.

“The big banks may have the most demanding shareholders of any publicly traded companies,” said the report. Those shareholders expect dividend growth every year, and the banks have all made it happen, easily beating the critical hurdle of 1.4% inflation over the past five years.

The reduced momentum in dividend growth reflects difficulties in delivering investor-sought gains given a slow-growth economy. And between rising investor expectations and downward pressure on economic returns, the ones who end up getting squeezed might be bank tellers and advisers — and, consequently, the clients.

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